An interesting thing is that you can’t print real money (gold, bitcoin, dollar if you are in Japan). Any money you can print will stop to be real ones soon, as people will exchange them into the real ones. As a result, you will have inflation in fake money but deflation in real money. Most governments who tried to print too much money has experienced it (e.g. Russia in 1990s).
Inflation is a Goodharted measure of economic growth. As soon as we start target it, it will decouple from economy.
All this has special relation to Japan which has very crazy monetary policy because of two things: tightly controlled exchange rate of yen to dollar (there are rules which prevent Japanese goods from being too cheap) and carry-trade (getting credits in yen to invest in US economy). In short, new printed yens are getting pumped in the US, not Japan economy (stock market), and too much inflation is prevented by regulation of exchange rate.
An interesting thing is that you can’t print real money (gold, bitcoin, dollar if you are in Japan). Any money you can print will stop to be real ones soon, as people will exchange them into the real ones. As a result, you will have inflation in fake money but deflation in real money. Most governments who tried to print too much money has experienced it (e.g. Russia in 1990s).
What do you mean by “real money”? What effects on the world does it have that “fake money” doesn’t? M1 in the United States increased a lot during the COVID-19 pandemic, does that mean that the US dollar is no longer “real money”?
You seem to be claiming (though correct me if I’m wrong) that expansionary monetary policy can’t achieve its objectives. What makes you believe that?
I understand that excessive money-printing that leads to very high inflation can decrease confidence in a currency and make people purchase another currency if they’re able to do so. However, that seems meaningfully different from having a central bank try to print enough money to get to ~2% YoY inflation from a baseline of zero or negative inflation.
(Note: I don’t know much about monetary policy and could be confused about something.)
Really interesting. I didn’t know that their was a Yen-Dollar exchange rate control mechanism. That sounds like it could plausibly be a major reason for Japan’s long-term economic woes. The story would go something like “late 80′s, Japan doing very well. Yen set very strong vs. dollar”. Then later “Japan has a recession, economy weaker. Yen prevented from falling by weird controls.” Leaving Japan with an overpriced currency and thus a weakened export market and weak growth.
There also an interesting point that money experiments create parasites. In Russia in 90s there was rampant money printing and inflation, but economy declined in real term in dollars. One of the reason is that people (including one my friend) took credits in rubles in bank, convert them in dollars and just wait; after a year they exchangeв back at a better exchange rate and returned the credit, taking profit and not producing any substantial. This creates additional pressure on exchange rate and was self-perpetual mechanism.
Carry-trade in Japan is probably also a type of parasite on the near-zero interest rates.
I will try to explain with real world example. Russian government in early 90s printed money and pay a person a salary. The person took the money and exchanged them on dollars in the same day. Dollars are the real money. Many goods like electronics had prices only in dollars in stores. You can pay in dollars or can change your dollars into rubles by a new rate which grew everyday.
An interesting thing is that you can’t print real money (gold, bitcoin, dollar if you are in Japan). Any money you can print will stop to be real ones soon, as people will exchange them into the real ones. As a result, you will have inflation in fake money but deflation in real money. Most governments who tried to print too much money has experienced it (e.g. Russia in 1990s).
Inflation is a Goodharted measure of economic growth. As soon as we start target it, it will decouple from economy.
All this has special relation to Japan which has very crazy monetary policy because of two things: tightly controlled exchange rate of yen to dollar (there are rules which prevent Japanese goods from being too cheap) and carry-trade (getting credits in yen to invest in US economy). In short, new printed yens are getting pumped in the US, not Japan economy (stock market), and too much inflation is prevented by regulation of exchange rate.
What do you mean by “real money”? What effects on the world does it have that “fake money” doesn’t? M1 in the United States increased a lot during the COVID-19 pandemic, does that mean that the US dollar is no longer “real money”?
You seem to be claiming (though correct me if I’m wrong) that expansionary monetary policy can’t achieve its objectives. What makes you believe that?
I understand that excessive money-printing that leads to very high inflation can decrease confidence in a currency and make people purchase another currency if they’re able to do so. However, that seems meaningfully different from having a central bank try to print enough money to get to ~2% YoY inflation from a baseline of zero or negative inflation.
(Note: I don’t know much about monetary policy and could be confused about something.)
Dollars are real money because almost all prices in world are nominated in dollars, and it is widely used as an instrument to store value.
In Japan, excess money goes to US stock market via carry-trade, and don’t contribute to inflation of money in real economy.
Can someone explain the disagree votes here?
Really interesting. I didn’t know that their was a Yen-Dollar exchange rate control mechanism. That sounds like it could plausibly be a major reason for Japan’s long-term economic woes. The story would go something like “late 80′s, Japan doing very well. Yen set very strong vs. dollar”. Then later “Japan has a recession, economy weaker. Yen prevented from falling by weird controls.” Leaving Japan with an overpriced currency and thus a weakened export market and weak growth.
There also an interesting point that money experiments create parasites. In Russia in 90s there was rampant money printing and inflation, but economy declined in real term in dollars. One of the reason is that people (including one my friend) took credits in rubles in bank, convert them in dollars and just wait; after a year they exchangeв back at a better exchange rate and returned the credit, taking profit and not producing any substantial. This creates additional pressure on exchange rate and was self-perpetual mechanism.
Carry-trade in Japan is probably also a type of parasite on the near-zero interest rates.
I’m struggling to understand your first paragraph and I think this sentence has a typo?
I will try to explain with real world example. Russian government in early 90s printed money and pay a person a salary. The person took the money and exchanged them on dollars in the same day. Dollars are the real money. Many goods like electronics had prices only in dollars in stores. You can pay in dollars or can change your dollars into rubles by a new rate which grew everyday.
I read it as “People would use other forms of money for trade if the government fiat ever turns into monopoly money”